EXPLAINING THE EQUITY RISK PREMIUM
We develop a simple overlapping generations model in which the young have a choice in investing in equities or index-linked bonds. Projections of share price uncertainty over a 30-year period show that the risk associated with such long-term investments predicts an equity premium that matches historical values. Moreover, we calibrate the model and show that it can predict up to the fourth moment of both the observed risk premium and the real rate of interest. Copyright © 2006 The Authors; Journal compilation © 2006 Blackwell Publishing Ltd and The University of Manchester.
Year of publication: |
2006
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Authors: | LUNGU, LAURIAN ; MINFORD, PATRICK |
Published in: |
Manchester School. - School of Economics, ISSN 1463-6786. - Vol. 74.2006, 6, p. 670-700
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Publisher: |
School of Economics |
Saved in:
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